Aspects of Personal Finance That Can Never Be Calculated (with Excel!)

Published: October 25, 2016 at 9:40 am

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Albert Einstein is supposed to have said,  “The more I learn, the more I realize how much I don’t know.”. Aristotle is also credited with a similar quote. Applied to what I do at freefincal, that quote would read as, “The more I stare at Excel sheets, the more I realize their limitations”. Here is a list of personal finance characteristics that can never be used as part of a calculation (in Excel or anywhere else). Yet, they are crucial to how we manage money and finance our future.

The desire to want something immediately

Apple I phone 7 can be purchased online for Rs. 70,000. Now, what if I did not have that much with me? I will simply choose one of the EMI options. There is one via Flipkart for 15%. I will have to pay Rs. 3395 for two years. That is a sum of Rs. 81480 or an extra Rs. 11,480 – the price of wanting a I7 immediately. The cost of spreading payments over two years is Rs. 478 per  month.

Well, if I could wait two years to lay hands on that device, I could open a two -year RD at about 7% and save up Rs. 2700 or so. By delaying gratification I get to save about Rs. 500 per month, that I could use elsewhere.

Which is the better choice? If we choose not to get judgemental, then the answer is “do what you wish to do’. Or RIPFPI as Ashal would say.

How can I quantify the burning desire to touch, feel and use an I-phone? Take selfies with it and flaunt it among my friends – which these days means on social media.

Sure, I can calculate the cost of instant gratification and the benefit of delaying it. However, when I desire something, I will simply choose not to calculate the cost. If I do not see something as an expense, it is not one!

The trauma of staying in rent

Those who have stayed in rent for decades, suffered at the hands of landlords, moved often, will not think twice about buying a house when they are able to. They will not stop and think the impact of a home loan on their future retirement corpus or the kind of money they can invest for their children’s future.

This too is a burning desire, but one driven by emotional trauma. And perhaps the desire to let their children not go through what they did.

It is said that only those who have enough of it claim that “money is not everything! Similarly, I often wonder if only those who a place of their own, advice others to “rent and buy later”.

“Do not rent, until you can really* afford to” is logical advice that can be proven via Excel, but it cannot account for the downside of renting.

* when we are sure we can handle crucial goals like retirement and children’s future. Here again, may choose not worry about it and decide to handle it later.

The unbearable heaviness of debt

I can think of two examples here:

Incurred long-term debt: Home loans The pressure of servicing an EMI cannot be quantified. The pressure is self-made, often made worse by parents and spouses and friends – “always best to prepay!”. Why this kolaveri to pre-pay home loans?! – easy for me to ask!

Surprisingly, even those who pay a small EMI (compared to what they earn) are very particular about pre-closure. I can show via Excel that it may not be a smart move: Prepay Home Loan or Invest, but matters little for them and I understand.

Perfectly safe short-term debt: This applies to pig-headed people like me. I don’t care whether I am offered free petrol or free air-miles, I will not use a credit card. It is too yucky for me. My wife has one and I pay in full within a day or two of the purchase. No auto-debit before due date business. It is silly, but that is how I am. There are so many smart credit card users out there, but I will not learn from them!

The comfort of regular income in retirement

Retirees who have ample corpus* and can afford to manage their expenses via withdrawals without drawing a pension via an annuity still prefer the latter. The comfort regular payments in retirement is hard to argue with.

* Only those with an ample corpus. See: When should senior citizens purchase an annuity?

Buying vs Renting

If you notice, all of the above refer to a tussle between the heart and the mind and the heart winning. This is also true for those who say, “no risk for me – no stocks, no mfs” without realising they may be taking a bigger risk! Or those who prefer insurance policies that offer a return instead of a term insurance plan.

Even if one wants to look at a choice logically, the analysis could be flawed because of the inability to take into account crucial factors. The rent vs buy calculators are a good example.

I have written about this in some detail before (as to why I will not make such a calculator): the trouble with rent vs. buy calculations, here is key argument.

A rent vs buy analysis is flawed unless the houses being compared belong to the same locality with the same kind of logistics. This is rarely the case in big cities.

Due to poor rental yields, I can afford to stay in rent in the centre of the city (good logistics, solid support by civic authorities), but cannot afford to buy the same house/flat. I can only afford to buy one in the outskirts where the facilities are not the same.

Yet, many use rent vs buy calculators and compare only cash flows, tax saved etc. This is a flawed comparison. Perhaps they are driven by the urge to get their own roof.

Can you think of a few more such aspects of personal finance that can never be quantified?

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About the Author M Pattabiraman author of freefincal.comM. Pattabiraman(PhD) is the author and owner of  He is an associate professor at the Indian Institute of Technology, Madras since Aug 2006. Pattu” as he is popularly known, has co-authored two print-books, You can be rich too with goal based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management.  He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. Pattu publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year (2.5 million page views) with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis. He conducts free money management sessions for corporates  and associations(see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints, TamilNadu Investors Association etc. Contact information: freefincal {at} Gmail {dot} com (sponsored posts or paid collaborations will not be entertained)
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  1. Rent vs buy is certainly one aspect, delayed gratification is another. The story would go something like this – “I’ll delay buying this item I need, so that I can save now and consume later”. But at what point is ‘later’ applicable. It can’t be computed in a spreadsheet.
    “Investing in yourself” is another. I know people who’ve not even attempted to get higher education because “I’m earning well enough now”. But there’s a huge optionality in getting a higher education, it can increase your salary 10x. But the optionality can’t be quantified. It’s the same problem leaving your job to try out a business. You can never quantify that in a spreadsheet. Imagine if Narayan Murthy and co never left their jobs to start infosys. There are many other aspects of investing in yourself. A friend I know, his wife invested lakhs in buying expensive camera equipment without even knowing much about photography, but now she does casual photography and charges lakhs per day. How can you calculate things like these?

  2. investing in self vs investing in X,Y,Z asset class

    lot of people’s problem could be easily solved if they took some effort to invest in themselves not research 100 calculators to put 1000Rs SIP in abc mutual fund.

  3. Dear Pattu Sir,

    Just curious, why “No auto-debit before due date business. “??

    As long as you pay the credit amount before a month you are not paying any interest on it so Auto-Debit will allow you to pay the amount before due date. This is what I do, and I also make sure the amount debited from my bank account is matching with the Credit Card bill in this way I am making sure there is no difference in the figures.

    It just I would like to know your view on doing this..

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